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As well as taking a note of what the directors in the companies you back are being paid, reports Vikki Kunz, you should keep a close eye on the share options they are offered.

Structured properly, share options can be a terrific tool for growth companies. They are initially cost effective and are an excellent incentive scheme, tightly aligning the interests of the executives with the general progress of the company.

What they are supposed to award is a share price that has been propelled forward by improved sales and earnings.

A perfect example of this during January was Ted Baker. Just 24 hours after Baker's board announced that sales over the Christmas trading period had soared an impressive 23 per cent, finance director Lindsay Page took advantage of the rise in the share price by exercising 152,778 share options at 135p. He promptly sold the lot for 390p, enjoying a £390,000 profit.

It was a similar story of well-earned gains for Kathy Rooney, a director at Bloomsbury Publishing, the firm in possession of the only licence to print money outside the Bank of England (Bloomsbury publishes the Harry Potter books).

On the very day the publisher announced that pre tax profits for the year would be in line with market expectations, Ms Rooney exercised her right to buy 426,000 shares at prices between 66.25p and 20.75p. She promptly sold 408,000 shares at 258p, which netted her a clean profit of £782,245.

Shareholders in this venture will not begrudge her this gain – Bloomsbury is expected to deliver profits of £15.3 million for the year to December 2003, a 27 per cent improvement on 2002.

In the money options

Over in the mining sector, the option deals I spotted during January weren't quite of this ilk. They were altogether more complex, although no less intriguing.

For instance, five days after announcing a gold pour at its Amantaytau operation in Uzbekistan (the company is hoping to produce 200,000 ounces of gold from the mine this year), the board of Oxus Gold awarded itself over 14 million share options that would, if exercised, represent 6.6 per cent of the company's total issued share capital.

The main beneficiaries were chief executive William Trew (4.25 million shares), chief operating officer John Donald (2.75 million shares) and Jonathan Kipps (2.75 million shares).

All three will be allowed to exercise their shares at 12p, a significant discount to the current 76.5p share price. Mr Trew's hypothetical paper profit on his package currently stands at £2.74 million.

Interestingly, Oxus has never reported a profit, never delivered a positive earnings figure nor declared a dividend.

Another mining board very active on the option front was Westmount Energy's. Westmount is a venture that holds strategic stakes in various speculative energy concerns.

After a recent flurry of activity (selling its 20.4 per cent stake in Fusion Oil & Gas to Sterling Energy), the group provided 311,833 new shares to its directors 'to satisfy certain costs and expenses incurred by the company' during the course of events. While chairman Derek Williams received 251,879 shares, worth £126, 000 at the current share price of 50p, executive directors Peter Richardson and Marc Yates gained 29,997 shares apiece.

In parallel with the deal on 15 January, this triumvirate snapped up options priced at 33.5p. Richardson and Yates added 225,000 shares each to their possessions while Williams' stake increased by 175,000 shares.

Interestingly, Westmount has been loss making for the past few years.